Busy Fed week, tech earnings could dictate the course of this rally, Fundstrat’s Tom Lee says

Investors are embarking on a hectic week with key tech companies reporting and a big Federal Reserve meeting – and it could shape the next steps for the stock market’s rally, said Fundstrat’s Tom Lee.

Microsoft and Alphabet are posting their latest results on Tuesday after the closing bell, while Meta Platforms, Apple and Amazon are due on Thursday afternoon.

Alphabet, Amazon, Meta and Microsoft popped to fresh highs during Monday’s session. The surge in Big Tech helped carry the S&P 500 to a fresh record – and its first close above 4,900. The Dow Jones Industrial Average also closed at a new high.  

“We expected new highs by late January, which was on schedule,” Lee told CNBC’s Contessa Brewer on “Last Call.” “And I think this week is going to tell us how much further we go.”

“We were penciling in 5,000 [on the S&P 500], and we could maybe go higher,” he said. “But from there, I think an air pocket forms.”

That’s because investors will be grappling with another key catalyst: The Fed’s two-day policy meeting, which culminates with a rate decision on Wednesday.

Lee said that investors will get nervous about the Fed and its path forward on rates. “I don’t think the Fed is in the position to cut rates, but what’s going to be important is how their views around that are evolving,” he said.

He also noted that parabolic market moves, which we have had since October 2023, tend to end in “a pretty big retracement.”

“I do think we continue to be strong, but then after that, there’s a big air pocket,” Lee added.

His year-end target for the S&P 500 is 5,200.